Investor Buys 24.9 Percent of Equity Bank

Equity Bank on Wednesday announced it was ceding a quarter of its shareholding to an international investor.

The deal with Helios Investors, will see the former take up a 24.99 per cent stake in Kenya's fastest growing bank, by acquiring over 90 million new shares of the institution at over Sh11 billion, making it the single largest shareholder.

It is the biggest ever such transaction in Kenya's banking history, which has been marked by low, desultory activity in the mergers and acquisitions stakes, even when bank failures and higher capital rules indicated otherwise.

Helios' entry brings much needed international weight to the Equity brand, being the home of respected big-name investors and funds, which have exclusively punted their money through it in sub-Saharan Africa.

They include UK government-owned CDC Group, United States OPIC, Soros Funds Management, associated with investment guru and philanthropist George Soros and International Finance Corporation (IFC), which is the World Bank's private capital arm. To be consummated by the end of the year, according to the promoters, the transaction is still subject to regulatory approval by the Capital Markets Authority and the Central Bank of Kenya.

The deal will be activated through the sale of some 90,516,255 new ordinary shares to the new majority owners at a price of Sh122 per unit, which is a premium on Equity's closing price of Sh119 at the Nairobi Stock Exchange on Wednesday.

Equity CEO James Mwangi, who described the deal as a "vote of confidence in the bank's corporate governance", said the cash would be used in the next phase of the bank's expansion into the region and the deepening of its ICT (information and communications technology) platform. "In terms of capitalisation, equity bank, now with a capital base of Sh22 billion becomes the biggest bank not only in Kenya but in the region.

"This now implies that equity is capable of doing a single transaction of up to Sh5 billion, like road building or airport (construction)," said the CEO. Already, the bank is earmarking at least Sh7 billion of the cash raised from the Helios deal into its latest acquisition target, mortgage financier Housing Finance.

Powered by its new capital base, which is estimated to hit Sh22 billion, the bank is targeting to up its branch network from the current 70 to 75 shops next year. It also has its sights on Uganda, Tanzania, Rwanda and the virgin territory of Southern Sudan.

Equity already boasts of some 1.7 million account holders, representing some 41 per cent of all the banked in Kenya.

On Wednesday, Mr Mwangi was keen to stress that the bank will retain its Kenyan identity, with at least 75 per cent remaining in local hands. The newly issued shares will carry the same rights and obligations as existing ones, except they will not earn dividends as and when declared. He also stressed that Helios will not take over the management of the bank and had insisted only on board representation.

However, the bank will seek approval from shareholders - through an extraordinary general meeting - and the Nairobi Stock Exchange (NSE) for listing of the additional shares.

The bank's trading shares gained a shilling to stand at Sh119 yesterday on a volume 146,000 units, against a 12-month high of 150 and low of Sh70. Equity, which only became a bank two years ago, has evolved a unique model based on fidelity to small savers.